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4 Reasons to Care About What’s Happening in Cyprus

4 Reasons to Care About What’s Happening in Cyprus

The tiny island country of Cyprus is in need of a 10 billion euro ($13 billion) bailout. Its financial woes had seemed something of a sideshow compared to that of its far larger neighbor, Greece, until last week, when the troika of the European Union, European Central Bank (ECB) and the International Monetary Fund (IMF) informed Cyprus that, in order to qualify for the bailout, small accountholders with deposits of 100,000 euros must pay a one-time tax of 6 percent.

Cyprus’ residents have taken to the streets and said a plain and simple “no” to the plan and on Tuesday, the country’s parliament officially voted down the measure. The country now has until Monday to figure out how to raise 5.8 billion euros, to continue to qualify for low-interest loans to keep its banks afloat — those banks having outstanding loans or other money at risk to the total of 152 billion euros (which is eight times the size of Cyprus’ GDP).

Cyprian banks have frozen all accounts and are closed but have kept ATMs stocked with cash under the order of the authorities. People have been lining up in Nicosia, Cyprus’ capital, and other cities to withdraw (or try to) their savings. There have been protests in the streets and clashes in the streets with riot police.

Berlin has said that Cyprus is “not systematically important.” But here’s some reasons to pay attention to Cyprus.

1) Cyprus’ economy is small but it still could still drag down the economy of the EU with its 27 member nations. The euro zone economies are still recovering and, at the end of 2012, the currency union actually fell deeper into recession as its largest economies in Germany and France shrank.

Without the bailout package, Cyprus’ economy could collapse and the country might have to leave the E.U. This could set off contagion by lowering investors’ confidence and bringing down other already-struggling EU economies such as that of Greece and Spain.

2) The U.S. has increased its financial ties to the euro zone. This year, it is strengthening these via a $613 billion free-trade deal. E.U.-U.S. trade has been on the rise and now accounts for 30 percent of global trade. E.U. leaders are indeed “so eager to have a larger American audience for their products that they have said there’s no reason .. tariffs can’t go straight down to zero,” says the Guardian – an arrangement that stands to benefit European countries more than the U.S.

3) Cyprus is a tax haven for, among others, rich Russians. For this reason, Nikos Chrysoloras in the Guardian advises us to exercise some caution in supporting the defeat of the tax levy measure by Cyprus’ parliament. Cyprians were not rejecting harsh austerity measures. Part of the agreement that the parliament rejected included a condition under which “assets belonging to foreign oligarchs and tycoons were subjected to a significant haircut (15.6%).”  The country’s banks are full of euros belonging to residents of, among other places, Moscow. While ordinary residents of Cyprus are worrying about their savings, others are avoiding paying the taxes they can.

4) Economic turmoil is no friend to rare wildlife who rely on government protections. Cyprus is home to a number of species that are threatened, including the critically endangered Mediterranean monk seal, of which fewer than 600 remain.

In the summer, hundreds of endangered turtles – 30 percent of the nests of loggerhead turtles and more than 20 percent of those of the green turtle – hatch on Cyprus’ beaches; only one out of a thousand make it from the beach to the ocean. Environmentalists have sought to pressure politicians to limit development to preserve the beaches. Watching the turtles hatch has become a popular tourist attraction and given Cyprus’ economic issues, tourism is more important than ever.

Cyprus has until Monday to secure the funds needed for the bailout.

 

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122 comments

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8:37AM PDT on Apr 10, 2013

I lived in Cyprus and still have many friends there. The current plan, to effectively freeze the assets of anyone with over 100,000 Euros saved is not only affecting the rich. It is having a significant effect on small and medium sized business, not least those who run small hotels which the Island relies on for a considerable percentage of its' income. Having said this I have some empathy with tax payers in other countries, principally Germany, who feel that they have already given a great deal of support to other countries that have not been as prudent. Sadly the concept of the Euro was faulted, for a single currency to work there must be full financial union - this outcome seems very unlikely now. I for one am grateful that the UK, where I live, stayed out of the Eurozone.

3:50PM PDT on Mar 29, 2013

This is a very scary reality of what can happen!! We certainly do not want China along with Russia to become the world leaders - God forbid.

1:01AM PDT on Mar 29, 2013

Indeed. Thanks.

7:58PM PDT on Mar 28, 2013

SCARY. Thinking more and more it could happen anywhere

5:02PM PDT on Mar 28, 2013

@Claudia A. "Companies MUST PAY TAXES!, why is it so difficult to do?"
Read David F. post as he is right, Corporations pass the taxes on to the consumers of their products.

@Susan T. I'm not familiar with Ireland's economy. I quick search shows they have a corporate tax rate of 12.5% which is much lower than the US at 39%, obviously that is only one factor. Looking at the economic freedom index they are right behind the US at #11, the US used to be #1. http://www.heritage.org/index/ranking

@Ruth R. At this point I don't think it's a matter of if but when. Who knows what or when will trigger the collapse but it may be swift once it happens. I think the Chinese will be well positioned to take over as the sole Super Power along with Russia's support after the collapse of the dollar. The BRIC nations have been preparing for a while now even publicly.

10:19AM PDT on Mar 28, 2013

ty

9:28AM PDT on Mar 28, 2013

We are so intertwined today that we have to care about everywhere.

5:48AM PDT on Mar 28, 2013

Food for thought...before Cyprus joined the EU, their Pound was stronger than the British Pound...I traveled to Cyprus for many years before they became a part of the EU... Their standard of living was pretty high... At that stage they were attracting mainly Russian money and rumors where that it was an ideal place to start an offshore company, because they never asked questions, and their tax rates for company's was very competitive. Also they perceived as a safe haven for monies from Lebanon.. Tourism contributes to 11% of Cyprus GDP-Their tourism ranks 24th in the world in terms of competitiveness. They exported $1.8 billion last year in goods such as citrus, clothing , potatoes and pharmaceuticals, and then of course large foreign deposits...The banks have become powerful..and the rich have got richer because of tax incentives...But I think the EU leadership inability to deal with the complexities of the smaller countries also needs to be looked at...On paper a united Euro zone works..but only in a perfect environment...If they don't address it correctly global economies will be affected...

5:10AM PDT on Mar 28, 2013

Noted

9:08PM PDT on Mar 27, 2013

Thank you.

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